Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article we will take a look at the collective moves of hedge funds in Douglas Dynamics Inc (NYSE:PLOW) over the last 4 years and analyze what it means for you.
Douglas Dynamics Inc (NYSE:PLOW) has experienced an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that PLOW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Louis Navellier of Navellier & Associates
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the fresh hedge fund action encompassing Douglas Dynamics Inc (NYSE:PLOW).
What does smart money think about Douglas Dynamics Inc (NYSE:PLOW)?
At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in PLOW a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Douglas Dynamics Inc (NYSE:PLOW) was held by Citadel Investment Group, which reported holding $7 million worth of stock at the end of September. It was followed by Millennium Management with a $7 million position. Other investors bullish on the company included Driehaus Capital, Navellier & Associates, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Navellier & Associates allocated the biggest weight to Douglas Dynamics Inc (NYSE:PLOW), around 0.81% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, dishing out 0.18 percent of its 13F equity portfolio to PLOW.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. PEAK6 Capital Management, managed by Matthew Hulsizer, established the most valuable position in Douglas Dynamics Inc (NYSE:PLOW). PEAK6 Capital Management had $0.3 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also initiated a $0.2 million position during the quarter. The only other fund with a brand new PLOW position is Cliff Asness’s AQR Capital Management.
Let’s now review hedge fund activity in other stocks similar to Douglas Dynamics Inc (NYSE:PLOW). We will take a look at IMAX Corporation (NYSE:IMAX), Liberty Oilfield Services Inc. (NYSE:LBRT), James River Group Holdings Ltd (NASDAQ:JRVR), and Southside Bancshares, Inc. (NASDAQ:SBSI). This group of stocks’ market valuations resemble PLOW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IMAX | 14 | 46208 | -3 |
| LBRT | 16 | 48897 | 4 |
| JRVR | 10 | 70575 | 0 |
| SBSI | 8 | 64172 | 1 |
| Average | 12 | 57463 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $33 million in PLOW’s case. Liberty Oilfield Services Inc. (NYSE:LBRT) is the most popular stock in this table. On the other hand Southside Bancshares, Inc. (NASDAQ:SBSI) is the least popular one with only 8 bullish hedge fund positions. Douglas Dynamics Inc (NYSE:PLOW) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately PLOW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PLOW investors were disappointed as the stock returned -36.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
